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Ontario’s cannabis retail shops agree to deals with 26 licensed producers

The Ontario Cannabis Store signed supply deals with 26 Licensed Producers, according to a statement released by the province’s sole online provider of legal recreational cannabis, sending the marijuana stock market soaring, with investors clamoring to take part in the action. Everyone from Aphria to Aurora to Canopy Growth saw gains following the announcement, with some in the industry experiencing a double-digit rise in share prices.

It was the second significant milestone for marijuana stocks in as many weeks, following the announcement that Constellation Brands would up its stake in Canada’s number one cannabis company Canopy Growth Corporation. Moreover, for investors, recent events are the first sign of a possible end to the market’s summer doldrums.

[Read More: Canopy Growth prepares for increased cannabis sales come October]

“These agreements are a significant milestone that signals our readiness for the legalization of cannabis in Ontario,” said Patrick Ford, President and Chief Operating Officer of the Ontario Cannabis Store in a statement released Monday. “These agreements will allow us to safely and securely provide a broad variety of cannabis products to adult customers when online sales begin.”

 

A sigh of relief for marijuana stock investors

Canopy Growth Corporation (TSX:WEED) (NYSE:CGC) secured a deal through its wholly-owned subsidiary and well-known brand Tweed Inc. to offer at least 100 different SKUs in the government-run outlet. The deal includes dried flower, softgels, and oils. Investors responded to the news positively, sending Canopy stock prices spiking to nearly CAD$52 per share.

In a statement, Canopy applauded Ontario’s decision and said the company will now turn its attention to brick-and-mortar shops. The company praised Ontario’s new Conservative government’s plan to privatize retail cannabis sales, calling it an opportunity for private sector investment to spare taxpayer dollars.

[Read More: California’s cannabis chief: “There’s confusion out there.”]

“Today marks another significant milestone for us as we’ve officially ensured Ontarians will have access to a huge variety of Tweed-branded products,” said Mark Zekulin, President and Co-CEO of Canopy Growth in a statement. “With our private retail plan being rolled out in other provinces, our attention in Ontario will now turn to bricks and mortar shops in this key market.”

Aphria Inc. (TSX:APH) will provide nearly 60 products for online sale in the first year alone. According to company CEO Vic Neufeld, Aphria is not only ready for October 17, but they are also actively planning to expand their product line. Neufeld noted that the new supplier deal is another piece of the puzzle.

“The agreement with OCS is an important piece of the puzzle as we get closer to legalization in Canada,” said Neufeld in a statement. “Aphria is not only ready for October 17, but we’re also getting ready for the long-term evolution of the industry. We’re actively planning for new product categories and product innovations, with a focus on understanding consumer behavior and preferences, to ensure we’re leading where the market is going.”

An extensive list of suppliers

Organigram Holdings Inc. (TSX:OGI.V) signed an agreement with the new online retailer to provide nearly 30 dried flower products, pre-rolled products, and cannabis oils, including their well-known Edison Reserve brand. Organigram’s business strategy involves agreements with other provinces as well, including New Brunswick, Prince Edward Island, Manitoba and Alberta.

The Supreme Cannabis Company  (TSXV:FIRE) (OTC:SPRWF) lists Ontario as the latest of several secured province agreements, including Alberta, British Columbia, and Manitoba. More importantly, the company secured a spot for its 7ACRES brand online with the two-year agreement while also providing that the line to be sold in retail stores when the province has them up and running.

Aurora Cannabis Inc. (TSX:ACB) (OTC:ACBFF) and its wholly-owned subsidiary MedReleaf confirmed in a statement that they too would supply Ontario’s online cannabis retailer with a range of products, including dried flower, oils, and pre-rolls. Aurora, along with its subsidiaries and partners already has a large presence in Ontario, operating 29 medical patient education centers as well as four production facilities. Indeed, Aurora-based companies represent one of the largest employers in Ontario’s cannabis industry. The company has also secured agreements with other provinces and fully plans to grow exponentially as it enters the private recreational market.

"We are proud of the strong relationships we have built with provinces across the country. Our supply agreements with the Ontario Cannabis Stores are evidence of our commitment to working closely with them to deliver the products consumers want to buy, including those under the Aurora brand, San Raphael '71, and AltaVie." said Terry Booth, Aurora’s CEO in a statement. "With a population of more than 14 million people, Ontario is the largest adult consumer use market in Canada. Being a supplier to this market through the Aurora and MedReleaf brands provides us with a strong presence that positions us well to generate growth and build further brand recognition.

Cronos Group (NASDAQ:CRON) (TSX:CRON) experienced a double win by securing agreements not only with Ontario but also with British Columbia, while Up Cannabis, a licensed cultivator and seller of cannabis, and a subsidiary of Newstrike Resources, Ltd. (TSX-V:HIP) signed a deal with the online retailer in Ontario as well, as did Tilray Inc. (NASDAQ:TLRY), who will supply Marley Natural, Irisa, and CANACA brands to the store.  The Ontario government announced its full list of 26 suppliers in a statement released on Monday.

A move towards privatization

After the online business begins, Ontario does plan to let private companies sell from brick-and-mortar locations, with the decision to have private retail outlets being a major shift in policy. The previous Liberal government wanted a government-run system for the distribution and sale of legal cannabis. Under the leadership of Premier Doug Ford, the new conservative government changed course, announcing plans to privatize cannabis sales.

However, Ontario won’t allow private brick-and-mortar stores to open until Spring 2019, but that doesn’t seem to have deterred cannabis companies like Aphria and Canopy. All summer, private companies were racing to set up shop in Ontario, even though the province had not yet made a decision whether it would run brick-and-mortar shops or whether that would be left to the private sector.

The government has been tight-lipped regarding just how many retail licenses it plans to issue to private companies. Numbers have been tossed around, however, and there is speculation that 40 stores were supposed to be opened by October 2018. Those have been delayed as have the anticipated buildup to 80 stores in 2019 and 150 total stores by 2020.

When retail stores do open, the stores will be solely dedicated to cannabis sales. Ontario will not allow cannabis to be sold alongside alcohol or other substances, and will implement efforts to ensure that minors are restricted from purchasing the drug; they’ll even restrict advertising to youth. Ontario will work with cities to choose proper store locations to minimize community concerns.

The stores will not be self-service; only trained staff sales will be allowed. The province will require all sales staff to undergo mandatory training for public health knowledge and individual product knowledge. While supplier agreements for accessories are not yet in place, the Ontario retail shop is working on those and plans to expand its online product selection over time after the initial October 17 launch.

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